Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $1.41 million per year, growing at a rate of 2.3% per year. Goodyear has an equity cost of capital of 8.4%, a debt cost of capital of 7.2%, a marginal corporate tax rate of 32%, and a debt-equity ratio of 2.6. If the plant has average risk and Goodyear plans to maintain a constant debt-equity ratio, what after-tax amount must it receive for the plant for the divestiture to be profitable? A divestiture would be profitable if Goodyear received more than $enter your response here million after tax. (Round to one decimal place.)
Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of $1.41 million per year, growing at a rate of 2.3% per year. Goodyear has an equity cost of capital of 8.4%, a debt cost of capital of 7.2%, a marginal corporate tax rate of 32%, and a debt-equity ratio of 2.6. If the plant has average risk and Goodyear plans to maintain a constant debt-equity ratio, what after-tax amount must it receive for the plant for the divestiture to be profitable? A divestiture would be profitable if Goodyear received more than $enter your response here million after tax. (Round to one decimal place.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Suppose Goodyear Tire and Rubber Company is considering divesting one of its manufacturing plants. The plant is expected to generate free cash flows of
$1.41
million per year, growing at a rate of
2.3%
per year. Goodyear has an equity cost of capital of
8.4%,
a debt cost of capital of
7.2%,
a marginal corporate tax rate of
32%,
and a debt-equity ratio of
2.6.
If the plant has average risk and Goodyear plans to maintain a constant debt-equity ratio, what after-tax amount must it receive for the plant for the divestiture to be profitable?A divestiture would be profitable if Goodyear received more than
$enter your response here
million after tax. (Round to one decimal place.)AI-Generated Solution
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